IMF says Eritrea needs to act soon on economic woes
By Laura MacInnis
WASHINGTON, Feb 9 (Reuters) – Eritrea cannot wait for tensions along its border with Ethiopia to abate before tackling its deep-set economic problems, the International Monetary Fund said on Wednesday
Eritrea and Ethiopia, Horn of Africa neighbors who waged war from 1998-2000 over a border dispute, remain in a stalemate over where their 1,000 kilometer (620 mile) border should be drawn.
The IMF said Eritrea, one of the world’s poorest countries, needed to extricate its peasant economy from the conflict as much as possible, and move ahead with needed reforms.
“The ongoing ‘no war/no peace’ impasse could continue indefinitely, thereby delaying the (military) demobilization program and a return to peacetime economy,” the IMF said in an annual review of the country.
“While recognizing the importance of a lasting resolution of the border conflict for a broader outlook, directors urged the authorities to act decisively on measures that would help improve the current situation while laying the foundations for sustained peacetime growth.”
The Washington-based development lender said Eritrea had paid a high economic and social cost from the border impasse, while a recent drought damaged the largely agricultural economy even further.
“Poverty remains pervasive, defense spending large, and fiscal deficits and government debt are at unsustainable levels,” the IMF said. It also expressed concern over Eritrea’s high inflation rate, and declining international reserves and export levels.
Reducing military spending would help Eritrea’s economy and ease the country’s budget pressures, the IMF said.
In addition, the IMF said Eritrean authorities needed to make their policy-making more transparent, and to remove unnecessary government controls on the economy.
It urged the central bank to allow a gradual movement of interest rates and exchange rates toward market-set levels.
“In the short-term, well-targeted and transparent subsidies might be used to limit the effect of exchange rate adjustments on prices of essential goods,” the fund said.
More than half of Eritrea’s population lives on less than $1 per day. The country ranked 156 on the United Nations’ Human Development Index of 177 countries.